Sept. 13 (Bloomberg) -- New Zealand signaled an 18-month
pause in record-low interest rates may last through mid-2013 to
help bolster an economy buffeted by weaker global growth and
strained by one of the developed world’s strongest currencies.

“New Zealand’s trading partner outlook remains weak,”
Reserve Bank Governor Alan Bollard told reporters in Wellington
after leaving the official cash rate at 2.5 percent. “We have
got a forecast that short-term interest rates are going to stay
roughly where they are for another year, so that’s quite a
stable sort of outlook.”

The decision was Bollard’s last in a 10-year tenure before
he steps down later this month, succeeded by former World Bank
co-managing director Graeme Wheeler. While the central bank
signaled little need to raise borrowing costs until the second
half of 2013 because of risks from Europe’s fiscal crisis and
the outlook for New Zealand’s trading partners including China,
economists are waiting to gauge Wheeler’s interpretation of
conditions before agreeing.

“The forward guidance given in today’s statement has a
fairly limited shelf life,” said Dominick Stephens, chief New
Zealand economist at Westpac Banking Corp. in Auckland. “We
will reserve any judgment on changing our monetary policy
forecast until we have a better understanding of Graeme
Wheeler’s style.”

Currency Reaction

Today’s rate decision was forecast by all 16 economists in
a Bloomberg News survey. New Zealand’s dollar bought 82.01 U.S.
cents at 10:15 a.m. in Wellington from 82.07 cents immediately
before the statement.

The so-called kiwi has advanced 5.6 percent this year
against the U.S. dollar, making it the strongest performer among
the Group of 10 currencies tracked by Bloomberg.

The central bank today forecast the three-month bank bill
yield will be 2.7 percent in the first quarter next year,
unchanged from the current quarter, according to the monetary
policy statement.

The yield will rise slightly to 2.8 percent by the fourth
quarter of 2013, and 3.2 percent a year later, the RBNZ said.
The forecasts, which are seen as a guide to the direction of the
cash rate, suggest no increase in the cash rate until the second
half of 2013.

In the domestic economy, “fiscal consolidation is
constraining demand growth, and the high New Zealand dollar
continues to undermine export earnings and encourage
substitution toward imported goods and services,” Bollard said.

‘Headwinds’

“Headwinds for the economic outlook are still evident,”
the central bank said in a separate monetary policy statement
also released today. “Domestically, the unemployment rate
remains elevated.” The jobless rate in the second quarter was
6.8 percent compared with 6.7 percent three months earlier.

“Underlying annual inflation, which recently moved below 2
percent, is expected to settle near the mid-point of the target
range over the medium term,” Bollard said.

Seven of the economists surveyed by Bloomberg forecast the
next New Zealand rate increase will be in the first quarter next
year. Four predicted the next rise will occur in the April-June
period, three estimate the next tightening will come in the
third quarter and two saw no change until after 2013.

Rebuilding Effort

Bollard has left the cash rate at 2.5 percent since March
last year to allow the economy to recover after the nation’s
deadliest earthquake in 80 years. The February 2011 temblor
struck Christchurch, New Zealand’s third-largest city, and the
surrounding Canterbury province, killing 185 people and closing
the central city.

Reconstruction is expected to accelerate next year, Bollard
said.

“We have been talking to insurance companies and urging
them to make sure they’re active,” he said. “We think it is
starting to move and will help deliver the sort of rebuild
numbers we are forecasting through next year.”

Bollard steps down on Sept. 25, ending his second five-year
term. He will become executive director of the Asia-Pacific
Economic Cooperation forum secretariat.

Wheeler returns to his homeland to lead the central bank
after a 13-year career at the World Bank in Washington,
including four years as managing director. He will sign a policy
targets agreement with Finance Minister Bill English in coming
days.